Is Medtronic's Dividend Safe?

Core Viewpoint - Medtronic has a long history of being a reliable dividend growth stock, currently offering a yield of over 3%, which is more than double the S&P 500 average of 1.3% [1] Dividend Safety - Medtronic's current payout ratio exceeds 80%, indicating limited room to cover dividends if earnings decline [3] - The company's diluted earnings per share over the past 12 months is $3.27, while its annual dividend is$2.80, resulting in a payout ratio of approximately 86% [4] - Although Medtronic has consistently posted profits, the high payout ratio raises concerns about its ability to invest in operations and sustain dividend growth [5] Free Cash Flow Analysis - Medtronic's free cash flow over the past four quarters totals $5.5 billion, while dividend payments during the same period amount to$3.6 billion [7] - In the last two quarters, free cash flow has been lower than dividend payments, indicating a potential issue for future dividend sustainability [7][8] Investment Considerations - While Medtronic's dividend appears safe for now, the elevated payout ratio and recent free cash flow trends suggest that future dividend increases may be limited [8] - The company's stock has declined by approximately 30% over the past five years, raising questions about the effectiveness of dividend income in the absence of strong business growth, which is currently around 5% [9] - Medtronic is trading at 14 times next year's estimated earnings, which may attract investors looking for value stocks [9] Overall Assessment - Medtronic's dividend is currently safe, but there may be more attractive income-generating investments available that offer a better balance of growth and dividends [10]